On the other hand, we already have the CIA (the link goes to Washington Post article from August 2010) who's been active already in Yemen...

False-Flag czar, anyone?

And remember, Yemeni officials say there's no UPS or FedEx flight into and out of Yemen.

Also remember that Washington Post has a content partnership with 36,760-member-strong GovLoop, a social networking site for the federal government workers that promotes a wonderful idea that "Government Doesn't Suck" because it is staffed with "cool cats" who watch Jon Stewart's show.

If it was, it is kind of fitting in an environment where nothing seems to work - whether it is a federal 'stimulus', Democratic last-minute push to retain control, Bank of Japan's effort to suppress yen...

A package in London, England, that has sparked alarm about cargo arriving into the United States had white powder all over it as well as wires and a circuit card attached, a law-enforcement source said. The package came from Sana, Yemen and was bound for Chicago, Illinois, the source said. Investigators are examining two similar packages - one on a plane in Dubai, in the United Arab Emirates, and another in East Midlands, in the United Kingdom.

In the last 24 hours, security officials received a tip from an unnamed ally that packages coming from Yemen were destined for synagogues in Chicago, Illinois, according to information given to CNN contributor Fran Townsend.

A "number" of suspicious packages have been found in England, a British security source said. All were sent from the same person in Yemen through UPS and had American destinations.

Yemen Embassy spokesman Mohammed Albasha in Washington said no UPS or FedEx flights take off or land in Yemen.

And... (drumroll please)...It's Al-Qaeda!

U.S. officials believe that al Qaeda in the Arabian Peninsula was behind the plot that caused a security scare at English and American airports on Friday.

So they found out about these suspicious packages because an "unnamed ally" tipped them. The package that triggered alarm had white powder all over it and a circuit board and wires attached to it. Hmmmm. I find it hard to believe that UPS or FedEx would accept such a package to begin with... And there is no UPS flight in and out of Yemen. And it is the work of Al-Qaeda.

Thursday, October 28, 2010

The Federal Reserve's claim of "independence" is sorely tested, I think, with the latest revelation by Bloomberg that the NY Fed sent a questionnaire to the primary dealers (including both domestic and foreign banks) asking how much QE2 they would like in the next 6 months.

The Federal Reserve asked bond dealers and investors for projections of central bank asset purchases over the next six months, along with the likely effect on yields, as it seeks to gauge the possible impact of new efforts to spur growth.

...The New York Fed survey, obtained by Bloomberg News, asks about expectations for the initial size of any new program of debt purchases and the time over which it would be completed. It also asks firms how often they anticipate the Fed will re- evaluate the program, and to estimate its ultimate size.

...In the survey, dealers assigned percent chances to the Fed easing through communications changes in the FOMC statement, additional purchases, or some other means. They were also asked how communications might change, and how the Fed might carry out new purchases.

Another question asked dealers to estimate changes in nominal and real 10-year Treasury yields “if the purchases were announced and completed over a six-month period.” The amounts dealers chose from were zero, $250 billion, $500 billion and $1 trillion.

On an annual basis, that translates into $2 trillion, exactly the amount predicted by Goldman Sachs, as I reported on this blog.

So, the Federal Reserve will decide on probably the most important monetary policy that will affect not just the US but entire world with a handful of its member banks. It makes sense, doesn't it? It makes it clear whom the Federal Reserve serves.

Here's the list of the primary dealers (info from www.newyorkfed.org - notice it's not .gov):

Wednesday, October 27, 2010

The web-savvy Gen-Xer government employees will march alongside Jon Stewart's rally on Saturday, reports Washington Post, who happens to have a close tie with these government workers in promoting this fine idea of "Government Doesn't Suck".

I guess they are not aware that their salaries and benefits (which are twice those of the private sector workers) are paid by taxpayers, and just like Illinois state government workers who marched to demand tax increase so that they would retain their jobs and benefits, they don't seem to know when to keep quiet.

Amid growing dissatisfaction with federal employees, a group of younger, web-savvy feds are planning to march on Saturday in defense of their coworkers on the sidelines of Jon Stewart's "Rally to Restore Sanity."

Organizers of the "Government Doesn't Suck March" (their choice of words, not ours) were inspired in part by last week's Washington Post poll that revealed widespread negative perceptions of federal workers.

"We hear it day in and day out: the government sucks, federal employees are lazy and their positions are redundant," said march organizer Steve Ressler, founder of GovLoop, a social networking Web site for public servants.

"It's time to turn the tables and remind the world that government employees just happen to be people -- people that don't suck," Ressler said in a message sent to The Federal Eye on Sunday announcing the march. Government workers "are a lot of cool cats" who work hard, listen to good music and watch Stewart's "The Daily Show," "but that's all after they've spent a whole day keeping the country running," he said.

Simply amazing.

(So all the government workers are Democrats?)

And

The Washington Post maintains a content partnership with GovLoop as part of our coverage of the federal government.

At the end of the article, there is a list of the latest articles about varioius government agencies that Washington Post and other major news outlets (such as WSJ and NY Times) have published. Oh wait, "content partnership"... So, were these articles actually written by these web-savvy federal government employees, and MSM outlets were simply their conduits?

Well, the markets didn't wait for the Fed announcement. On the pronouncement by the Wall Street Journal writer citing anonymous "fed officials" last night that the much-anticipated QE2 may be less and shorter, they decided to do the dumping right away.

The talk that the Fed may do less has been in the financial media for the past few days, but it took WSJ's Hilsenrath to give the market a definite direction: Down.

Dow Industrial Average is currently down 130 points;

Treasuries are down (yields are up);

Gold, silver are down;

Oil is down;

Ag commodities are down (except for SGG and JO, as everyone needs a cup of strong coffee with sugar either to combat this market or stay awake during the market hours);

The Fed's aim is to drive up the prices of long-term bonds, which in turn would push down long-term interest rates. It hopes that would spur more investment and spending and liven up the recovery. But officials want to avoid the "shock and awe" style used during the crisis in favor of an approach that allows them to adjust their policy, and possibly add to their purchases, over time as the recovery unfolds.

Uh oh...

Later in the article,

A Wall Street Journal survey of private sector economists in early October found that the Fed is expected to purchase about $250 billion of Treasury bonds per quarter and continue until mid-2011, amounting to about $750 billion in all.

Not $2 trillion, not even $1 trillion. Not $100 billion per month.

So who is going to be right? Hilsenrath with $750 billion? Hatzius with $2 trillion? If it's Hilsenrath, the stock market may sell off hard after the announcement, US dollar may shoot up, Treasuries may be dumped, along with gold and silver.

Maybe that's what Bernanke wants - for the markets to tank - so that he can push for QE3 (that's Marc Faber, isn't it?). Besides, three regional Fed presidents who have been vocal in their criticism of Bernanke's policy, Narayana Kocherlakota of Minneapolis, Richard Fisher of Dallas and Charles Plosser of Philadelphia, will become voting members of FOMC in January 2011. The most effective way to counter their opposition to further quantitative easing may be for the markets to tank after announcing a light-weight QE2, and give Bernanke a chance to tell them "I told you so."

Yesterday the US Treasury auctioned 4-year 6-month TIPS (Treasury Inflation-Protected Securities), and for the first time ever, it resulted in the negative yield of minus 0.55%. The investors were paying the Treasury for the privilege of holding TIPS, because they expected the future inflation to be much higher partly thanks to the Fed's QE2 to come.

Words from "big shots" and insiders, summarized in a Bloomberg article.

Here are some snippets from the article that was posted on October 25, 2010 [my comments in blue]:

"Bernanke next week is likely to preside over a decision to launch another round of large-scale asset purchases after deploying $1.7 trillion to pull the economy out of the financial crisis, comments from policy makers over the past week indicate. This time, with interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower."

[Note that the Fed's aim is now openly to increase the rate of inflation. And reducing the cost of borrowing at the same time will accelerate the rate of inflation. How would that "unlock consumer spending"? The only thing I can think of is that the consumer would be fearful that his money would be worth much less tomorrow so he converts to tangible assets today - food, ammo, cotton undies, gold, whatever. And that would be considered "growth". NUTS, totally NUTS.]

“By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment”

[What's WRONG with trying to save money today to spend it later? It's called investment and capital formation, for God's sake, which is sorely lacking in the US during this decade of bubbles. Besides, doesn't he know about a place called Silicon Valley? It's been churning out ever-cheaper products with higher sophistication and power, and the companies there are thriving.]

William Dudley, president of the New York Fed:

current levels of inflation and a 9.6 percent unemployment rate are “unacceptable”...“To the extent that we can do things to improve the economic environment, we certainly owe it to the millions of people who are unemployed to do so"

[Oh my goodness... He thinks millions of unemployed Americans will well afford to buy necessities at ever inflating prices.]

Lyle Gramley, former Fed governor and a senior adviser at Potomac Research Group in Washington:

A second jolt of monetary stimulus would expand the Fed’s $2.3 trillion balance sheet to a record and likely work through the exchange rate as well as interest rates ... “It is a channel that works not only from the standpoint of encouraging more growth and making exports more competitive, but if you’re worried about inflation getting too low, this tends to put a little upward pressure"

[He's saying US dollar will tank, and it's good for us.]

Macroeconomic Advisers LLC in St. Louis, whose founder is Lawrence Meyer, another former Fed governor:

A 10 percent decline in the dollar in the first six months of next year would push the economy above estimates of trend growth, moving indicators on inflation and employment more rapidly toward the Fed’s policy goals..

[Here's their numbers:

GDP: 4.8% in 2011, 5.7% in 2012Unemployment: 7% in 2012Inflation (CPI without food and energy): 0.4% more in 2011, 0.7% more in 2012

What are they smoking?]

Steven Einhorn, Omega Advisors Inc. in New York:

“Exports will respond over the next six to 12 months, and a further lift in risk assets will have benefits in more consumer spending as it lifts households’ net worth.”

[More consumer spending I understand, as consumers will have to pay more for the same thing. But how will it lift households' net worth?? Households' net worth, for middle-class Americans, is tied to their HOUSES whose value keeps collapsing, thanks to people on Wall Street. Is he saying the value of the house will rise just because the Fed pumps more digital money in the system? Hasn't happened in QE1.]

[Now for some voice of reason and sanity, but they don't vote...]

Rainer Bruederle, Minister for Economics and Technology, Germany:

“It’s the wrong way to try to prevent or solve problems by adding more liquidity...Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate."

Charles Plosser, president of the Philadelphia Fed:

high unemployment may not be “amenable to monetary-policy solutions” and added that he was “less inclined to want to follow a policy that is highly concentrated on raising inflation and raising inflation expectations.”

Richard Fisher, president of the Dallas Fed:

“We need to be aware of the impact whatever we do has on other variables, and one of the variables is the dollar, the value of the dollar against other currencies”

“The history of the Fed, over the last 20 years, is one of bubble to bubble: one bubble deflates to create another bubble,” Minerd said. “We are certainly heading into the mother of all bubbles with commodities and gold.”

[20 years? Make it 97 years.]

There are very few economists and analysts who say that the Fed will NOT do QE2. Goldman's Hatzius thinks QE2 will be $2 trillion ($500 billion to start) but that the Fed really needs $4 trillion, as I reported on Sunday.

It is insanity even if it is $500 billion. But no one, NO ONE can stop Benny and the Inkjets on their way to the hyperinflation glory. They have their eyes set on history, determined to outdo the Weimar Republic.

So will it be sell-the-news, or not? 4 and a half days of trading remains until the Fed announcement.

No, not the election results but the decision by the Federal Reserve on November 3rd on QE2.

While regular news is almost nothing but the mid-term election and last-ditch campaigning (amusing news today was that Prez Obama skipped lobster dinner at a R.I. fundraiser for scooping the dog poop - I can't believe he actually said that to the guests when they were about to eat... but oh well what do you expect, this is the same guy who skipped luncheon with the king and the queen of Norway after receiving $1.4 million prize money), the financial media has been focusing on the day after the election, Wednesday November 3rd, when the Federal Reserve's FOMC meeting concludes; analysts and pundits have been expecting the announcement of a new round of asset purchase by the Fed, so-called QE2.

Will they, or won't they? And how much?

Will the market do a 'flash dash', or 'flash crash'?

Marc Faber thinks the investors will be disappointed a little bit if QE2 is short of $1 trillion, but he also thinks Bernanke will launch QE3, QE4, and so on if the market reaction to his QE2 is a dud.

The stock market is overdue for correction, but it corrects after the widely-expected Fed announcement it may be a buying opportunity, he says, and a crack-up boom in stocks and commodities may ensue.

Zero Hedge has the article that contains detailed analysis, but here's my summary:

Goldman Sachs' chief economist Jan Hatzius, who said the Fed could easily double the balance sheet to $4 trillion back in August 2009, now says $4 trillion addition to the existing balance sheet is needed to completely fill the gap between the official fed funds rate and the Taylor-implied fund rate, which is minus 7%.

I can almost see your eyes rolling... "What the @#$% is the Taylor-implied fund rate?" I will get to that shortly, but on with the GS economist's take...

Of that gap, Hatzius thinks 4% is already filled by 1) already near zero fed funds rate; 2) QE1; 3) communication from the Fed that it is committed to the near zero fed funds rate. That leaves 3% to fill.

Unlike the NY Fed president Dudley who said $500 billion QE2 would be equal to 0.75% rate reduction, Hatzius thinks it would take $1 trillion to achieve the effect of 0.75% rate reduction. Thus, it would take $4 trillion to fill the 3% gap.

The Federal Reserve would not do $4 trillion QE2, says Hatzius, as it fears the "tail risks" of expanding the balance sheet, one of which is "substantial mark-to-market investment losses".

So his prediction is the same as in 2009, that the Fed will eventually expand the balance sheet by $2 trillion. The question is how soon the Fed will converge with Goldman's assessment, he says. (I wonder if it is a rhetorical question..)

Now, "the Taylor-implied fund rate". You think it is some kind of economist gibberish (it is, actually) but the gibberish is taken very seriously at the Fed in crafting its monetary policies. And so you should be aware in order to front-run the Fed to protect your wealth.

First, who or what is "Taylor"? Taylor is the name of an economist at Stanford University who proposed the Taylor rule. The Taylor curve is derived from the rule, and indicates how the central bank should change the nominal interest rate in response to a given price inflation rate, and it looks like this (the chart was taken from the paper written by James Bullard, St. Louis Fed president):

It's that curved line. The red dotted line intersecting the Taylor curve is called "the Fisher relation" (Nominal Interest Rate= Real interest Rate + Expected Inflation Rate), and the two sections that these two lines intersect are "stable" points to the Fed which I circled in green and red. The Fed wants the green circle, and Japan is seemingly stuck around the red circle for two decades.

Since the official fed funds rate cannot be set below 0%, the Taylor curve flattens at about 1% price inflation and 0.1% fed funds rate and remains flat all the way into price deflation.

The Taylor-implied fund rate is basically a rate if the fed funds rate were allowed to go negative at a given price inflation rate. Bullard's paper has a chart that shows the Taylor curve, or rather "line" in this case, going straight through zero, instead of flattening out at zero. Since Bullard's chart didn't go below -3% on the Y-axis (nominal interest rate), I added a few lines and extended the Taylor "line". Surprise, surprise. At a price inflation rate of 1% (that's what we are at, supposedly), the fed funds rate should be -7%!

So, how can the Fed effectively achieve a negative fed funds rate? That's where the quantitative easing comes.

That is, if Hatzius is right in $1 trillion per 0.75%. If $1 trillion only achieves 0.5% reduction, the Fed would need $5 trillion newly printed money. It also depends on whether Hatzius' estimate is correct that 4% of the 7% gap has already been filled. What if the estimate is incorrect? What if ZIRP didn't contribute, and QE1 only achieved 1% gap-fill? The Fed would have 6% to fill, and that would take $8 trillion.

Got food? Got shelter? Got ammo? Got gold and silver?

As long as the numbers add up or line up neatly on the chart, these economists at the Fed or at Goldman Sachs do not quite care what may or may not happen on Main Street. QE1 was all about propping up TBTF banks and inviting insiders to benefit (PIMCO comes to mind, who dumped Treasuries and agency MBS on the Fed). QE2 should be no different. Excess reserves that banks hold at the Fed hasn't escaped much into Main Street. Banks don't lend, people and businesses don't borrow from the bank - either they can't, due to destroyed credit thanks to the TBTF banks, or they don't want to.

As a non-economist without PhD, I find it scary that PhD economists seem to take this "Taylor rule" and "Fisher relation" pretty much as given. They look to me like "hypothesis" at best. What if they are wrong? What if the Taylor "line" below 0% nominal interest rate is not as steep as the above-zero line? The Fed would end up pumping way more money into the system than warranted, possibly triggering a massive inflation and massive devaluation of US dollar.

I also quite don't understand the Fed officials' confidence in a gradual approach ($100 billion per month QE). The response may not be linear but chaotic (in a mathematical sense). After several weeks, months of steady QE2, prices may jump out of the blue or US dollar crash 10% in a day, and the Fed may not have any control. "Tail risks" are not just for the Fed balance sheet.

If and when things blow up beyond their control, I already know what the Fed officials' excuse will be: "Who could have known? We meant well..."

Remember that? Remember the company named BP, formerly British Petroleum?

Washington's Blogremembers (he also wrote extensively about the oil spill as it was unfolding), and has this post below. If you think all is now well in the Gulf, think again. In this country, important news tends to disappear very quickly while non-news is repeatedly paraded ad nauseum.

In related news, the government - always eager to immediately get to the bottom of what is really going on and then to fully publicize the results - has sent crucial Gulf samples to be analyzed in a lab . . . in Poland (all of the American labs are apparently busy testing the toxicity of hinky mortgages, mortgage backed securities, CDOs and naked CDSs). And the result will be shipped back by slow boat: NOAA isn't expecting results back until the end of the year.

About my coverage of Japan Earthquake of March 11

I am Japanese, and I not only read Japanese news sources for information on earthquake and the Fukushima Nuke Plant but also watch press conferences via the Internet when I can and summarize my findings, adding my observations.

About This Site

Well, this was, until March 11, 2011. Now it is taken over by the events in Japan, first earthquake and tsunami but quickly by the nuke reactor accident. It continues to be a one-person (me) blog, and I haven't even managed to update the sidebars after 5 months... Thanks for coming, spread the word.------------------This is an aggregator site of blogs coming out of SKF (double-short financials ETF) message board at Yahoo.

Along with commentary on day's financial news, it also provides links to the sites with financial and economic news, market data, stock technical analysis, and other relevant information that could potentially affect the financial markets and beyond.

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